As the global economy enters a year of recalibration, Canadian investors and households are bracing for a volatile but navigable 2025. According to Kate Leaman, AvaTrade’s chief market analyst, Canada’s economy is expected to post modest gains this year, growth hovering around 1.8%, but that calm surface belies a more turbulent undercurrent: trade friction with the United States, creeping inflation, and a changing global investment landscape.
A major flashpoint is the return of tariffs. In 2025, both Canada and the U.S. slapped 25% duties on a range of goods, from steel to everyday consumer products. While aimed at addressing trade imbalances, these tariffs have created a ripple effect that’s beginning to show up where it matters most your grocery bill. According to forecasts, tariffs will impact nearly 9% of the consumer price basket tracked by Statistics Canada, with price hikes filtering through to households over the next 12 to 18 months.
Tariffs and Your Wallet: The New Inflation Driver
By mid-2025, Canada’s inflation hovered around 2.3–2.5%, but that’s set to change. Bank of Canada now predicts a temporary spike above 3% in 2026, largely driven by tariff-induced price increases. The impact will be most acute in non-energy consumer goods: groceries, household items, and apparel. For the average Canadian, that means $100 worth of groceries today could cost $103 or more within the year, small increments that add up across a family’s monthly budget.
This inflationary jolt comes at a time when consumer confidence is slowly recovering, bolstered by wage growth and easing interest rates. But as AvaTrade analysts point out, shoppers should prepare for “several choppy quarters in the aisles,” as tariffs push costs higher before supply chains fully adjust. The long-term upside? A potential reshoring of production and more “Made in Canada” goods, though these may not come cheap, at least initially.
Market Strategy: Diversify and Stay Nimble
Despite the friction, Canada’s financial markets remain resilient. The TSX is expected to grow, though more slowly than in 2024, with double-digit earnings growth led by energy, materials, and financials. Infrastructure projects like LNG terminals and high commodity prices are fueling optimism in key sectors. But volatility remains a theme, and AvaTrade suggests Canadian investors diversify, across geographies, sectors, and asset classes to weather potential shocks.
Meanwhile, export trends are likely to be erratic: a short-term surge in shipments as firms race to beat new tariffs, followed by potential declines if trade barriers persist. Canada's strategic pivot to the Indo-Pacific, however, offers hope for exporters seeking new markets beyond the U.S.
The Bigger Picture: Resilient, But Tested
The Canadian economy is not in crisis but it is at a crossroads. Tariffs, inflation, and geopolitical tensions will challenge both households and investors to adapt. For Canadians, 2025 is not the year to expect explosive growth but it is a year to plan smart, shop strategically, and watch global headlines closely. As AvaTrade's market outlook notes: Canada remains fundamentally sound, but navigating the months ahead will require patience, adaptability, and a clear-eyed view of risk.
This analysis was written by Kate Leaman, chief market analyst at AvaTrade.
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